Greater supply chain complexity on the horizon

Greater supply chain complexity is taking a toll on many consumer packaged goods companies. The impact is creating strategic and operational obstacles adversely affecting company performance as measured by service, rising costs and inventories. As the retail and on-line marketplaces continue to diversify and evolve, the challenges facing food and beverage manufacturers will continue to grow.

Customer service is a key component in how companies may differentiate themselves in the marketplace. The ability to deliver effectively priced and innovative products in a timely and efficient manner helps separate category leaders from their competitors.

Yet greater marketplace diversification as such non-traditional retail outlets as convenience, dollar and drug stores upgrade their food and beverage offerings, and multiple companies continue to develop platforms for the selling of food and beverage products on-line will continue to add pressure.

Many of the pressures are highlighted in a survey published by the Grocery Manufacturers Association and conducted by the Boston Consulting Group. The survey includes responses from supply chain executives working with 40 C.P.G. companies, including such food and beverage businesses as The Coca-Cola Co., General Mills, Grupo Bimbo, Hormel Foods, Mondelez International, Nestle USA and Unilever.

From the survey, titled “Time to shift gears,” four key concerns emerge. First, rising freight costs are a challenge. Across all temperature modes, median freight costs rose 14%, from 93c per case to $1.03, since 2013, the last time the supply chain survey was conducted in 2013. For ambient shipments, costs rose 11%, from 88c per case to 97c.

Looking ahead, the report says 83% of respondents expect line-haul rates to increase. About 60% of C.P.G. companies are planning to increase their use of direct plant shipping in response to rising costs. But the report went on to note direct plant shipping may not be the “silver bullet” many hope.

Customer service also is suffering, according to the G.M.A. report. The survey is the association’s fifth installment and intended to provide companies with a benchmark that may be used to compare supply chain management efforts. This year’s survey shows customer service has worsened progressively when compared to previous iterations of the project.

The steepest customer service deterioration occurred in the measure of on-time delivery known as “requested arrival date” (RAD). The report’s authors said the fall in RAD represents an indication of how tight capacity has become and reflects the growing challenges of meeting customer expectations.

While service is declining, inventories are growing for companies. Compared to 2013, the survey showed total inventories have increased 22%. For ambient companies, median days of inventory on hand rose 20%, from 35 days to 42 days. Temperature-controlled shippers had slightly different results, with 60% saying they experienced an increase in inventories, but the median declined when compared to 2013.

While survey respondents say their forecasting accuracy has improved, they also note the perceived benefits of improved forecasting have not been seen. Even when C.P.G. companies have inventory in the right place, issues identified in the survey as “last mile-transportation challenges” are keeping them from delivering products to retailers on time.

A new obstacle to improving supply chain efficiencies is the growth of on-line shopping. The Internet has created endless aisles by multiplying the assortment of available products, according to the report. Managing the logistics of delivering on the Internet’s promise is proving to be a significant challenge.

As companies persist in their efforts to become more efficient, shifts in the marketplace will continue posing new challenges. Yet the focus also must be on growth, and companies must be on the lookout for new tools and services that may improve and enhance such a critical element to the operation of a successful, profitable and growing company.